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ADMINISTRATION MIND MELD: FISCAL CLIFF EDITION — Republicans mostly laughed off the initial White House fiscal cliff proposal which included a $1.6 trillion tax hike, $50 billion in 2013 stimulus spending, $400 billion in non-specific spending cuts and a transfer of debt limit hiking power to the president. Administration officials make the following points in response to the GOP outrage: The White House now actually has a framework on the table while Republicans said pretty much nothing in Treasury Secretary Tim Geithner’s Hill meetings on Thursday. … Instead of countering with anything of their own, Republicans leaked the White House offer. … Obama has now made it clear he will not negotiate with himself and has pushed the onus onto the GOP to come up with something. And perhaps most importantly: All the CEOs who visited the White House in recent days, a group with both GOP and Dem leanings and coming from businesses large and small, heard the exact same proposals and came away calling them credible.

GOP RESPONSE: IS THIS A JOKE? – A top Republican began his email with a famous movie line: “‘Are you sure?’ ‘Hit it.’ Definitely the last words in Thelma and Louise before they plunged off the cliff, possibly also the last exchange between Geithner and Obama before he went to the Hill yesterday.” … On a more serious note, the GOP source said of the White House opening bid: “[T]his move coupled with the encouragement by [columnist Charles] Krauthammer and Rush [Limbaugh] to ‘walk away’ may lead the Rs in the House to just pass their own bill and send it to the Senate to lay down a marker. Most House Rs are in very safe seats. They are far less afraid of the President than Rs in the Senate that have statewide constituencies.”

EXCLUSIVE: WHY MORGAN STANLEY WENT HARD ON THE CLIFF — Morgan Stanley CEO James Gorman this week took the unusual step of urging all of the bank’s employees to makes calls and send emails and letters to Washington demanding a “balanced” compromise on the fiscal cliff. While other CEOs have gone to Washington and appeared on television taking about the issue, Gorman felt it could be more effective to have employees of the bank — which has total client assets of nearly $2 trillion — make their voices heard inside the Beltway. …

Gorman told Morning Money: “It is important for all to have a voice in the future of our country — our employees have sent over 15,000 letters to Congress in the last 48 hours representing their engagement and that of our clients in this extraordinarily important issue.” .. As of 5 p.m. on Thursday, 48 hours after Gorman’s email, 5,130 ?Morgan Stanley employees, roughly one third of the entire staff, had sent15,400 letters to members of Congress. All 100 senators received letters from Morgan Stanley employees and 398 of 436 House Members received letters.

FIX THE DEBT’S DEAL MAKING DUO – New York Magazine’s Kevin Roose profiles the group’s creation and its odd couple fundraising duo of JPM’s Jimmy Lee and former Obama auto czar Steve Rattner: “‘Maya [MacGuineas] came to me and said, 'I've got a $3 million budget,’ Lee says. ‘And I said, 'Maya, it costs a billion dollars to run for president. Where's $3 million going to go?'’ While Rattner began touting the group’s aims on cable TV shows, Lee formed a team of government-relations types and began working the phones. "Steve and I are running it like a deal,’ Lee says. ‘We've got a syndicate book, if you will — who's spoken to who, how much they've contributed." … Not all of the chieftains' pitches worked, though. Lee tried and failed to persuade Blackstone co-founder Steve Schwarzman to join the cause …

“President Obama’s longtime allies on Wall Street — hedge fund manager Marc Lasry, Evercore Partners founder Roger Altman, and former UBS banker Robert Wolf, among others — are conspicuously absent from the CEO council. And, for reasons having more to do with the gender makeup of the Fortune 500 than the appeal of deficit hawkery, the group has had trouble making inroads with female executives. ‘We’re a little short on women,’ one recruiter sheepishly admitted.” http://nym.ag/YcyOQA

FIRST LOOK: FDIC’S HOENIG SAYS PUBLIC REMAINS AT RISK — FDIC Director Tom Hoenig will deliver a broad policy speech this morning at the AICPA-SIFMA conference in NYC. Hoenig’s speech “says that the public remains at risk of having to pick up the pieces when the next financial setback occurs. The safety net continues to expand to cover activities and enterprises it was not intended to protect, resulting in subsidized risk taking by the largest financial firms and fueling their leverage. At the same time, the tolerance for leverage remains essentially unchanged, leaving us in a situation that is little different than before the recent crisis. ...

“We can be confident that as time passes, this leverage again will be a problem and the public again will be left holding the bag. … Hoenig offers three recommendations to change this outcome by changing the framework and related incentives. They are: Changing the structure of the industry to ensure that the coverage of the safety net is narrowed to where it is needed … Simplifying and strengthening capital standards … Reestablishing a more rigorous examination program for the largest banks and bank holding companies to best understand the risk profile of both individual firms and financial markets.”

OBAMA HITS THE ROAD – Per a White House official: “On Friday, the President will travel to Montgomery County, Pennsylvania to continue making the public case for action by visiting a business that depends on middle class consumers during the holiday season, and could be impacted if income taxes go up on 98 percent of Americans at the end of the year. President Obama will tour and deliver remarks at The Rodon Group manufacturing facility in Hatfield, PA. The Rodon Group is the sole American manufacturer for K’NEX Brands, a construction toy company whose products include Tinkertoy, K’NEX, Nintendo and Angry Birds Building Sets."

THIS MORNING ON POLITICO PRO FINANCE – Zachary Warmbrodt and MJ Lee on the dust up over the plan to move a bill scaling back Dodd-Frank’s Lincoln swaps “push out” provision… Jon Prior talks to Ed DeMarco about his idea for how to proceed on housing finance reform… To learn more about Pro's subscriber-only coverage -- and to get Morning Money every day before 6 a.m. -- please contact Pro Services at (703) 341-4600 or info@politicopro.com

GOOD FRIDAY MORNING — For your viewing pleasure (or lack thereof), M.M. is on Yahoo! Finance’s Daily Ticker this morning talking fiscal cliff, CNBC’s “Closing Bell with Maria Bartiromo” in the 3 p.m. hour talking Treasury secretary possibilities and Current TV’s “Viewpoint with Eliot Spitzer” in the 8 p.m. taking cliff. Then we are going to sleep for 16 hours.

OVERHEARD at a federal agency: “Aren’t all the fiscal cliff countdown clocks on TV really just New Year's countdown clocks?” Sure wish they were. Because New Year’s is actually fun. http://bit.ly/X6sj0d

DRIVING THE DAY — Obama delivers remarks in Pennsylvania at 12:05 p.m. then returns to the White House … Personal income out at 8:30 a.m. EST expected to rise 0.2 percent while nominal spending remains flat … Chicago PMI at 9:45 a.m. EST expected to rise to 50.5 from 49.9

** A message from Public Notice: Fiscal responsibility is the only way to jumpstart our economy and that starts with strategy to cut spending, not short-term fixes or political gimmicks. The fiscal cliff is nearly a month away, but what’s on the table and what does it mean for you? Find out in our Fiscal Cliff Briefing Book http://bnkrpt.am/Qo5NwL **

FISCAL CLIFF NOTES –

OBAMA OPENING OFFER REBUFFED — POLITICO’s Steven Sloan and Joseph J. Schatz: “Treasury Secretary Timothy Geithner’s fiscal cliff proposal to Republicans Thursday was rejected out of hand, but offered a window into … Obama’s priorities in the fast-evolving budget talks. In the plan … Geithner proposed a two-step process to ultimately achieve about $1.6 trillion in new revenue. The first step would net $960 billion immediately by allowing the Bush-era tax cuts to expire on top earners along with raising rates on dividends and capital gains. Another $600 billion would come from overhauling the tax code — presumably next year …

“The administration also pressed for a patch of the alternative minimum tax and the extension of targeted business tax breaks at a cost of $236 billion. … Geithner also took the unusual step of proposing an end to congressional approval of debt ceiling increases. Under his plan, according to a senior Senate GOP aide, the president would have the authority to unilaterally raise the debt ceiling at any time. Congress could pass a resolution of disapproval, but it would require a two-thirds vote of both chambers to pass, and could still be vetoed.” http://bit.ly/116XU1H

“WHITE HOUSE WISH LIST” — WSJ’s Janet Hook, Damian Paletta and Carol E. Lee: “The proposal marked an opening salvo in negotiations … and represented a particularly expansive version of the White House's wish list, with a heavy focus on tax increases and spending proposals — including keeping in place a payroll-tax cut and extended unemployment benefits. … Republicans haven't put any comparable offer on the table. They have indicated willingness to accept $800 billion in revenues over 10 years, half the amount Mr. Obama proposed. And they have sought far more in spending cuts in exchange for their concessions on taxes. ‘No substantive progress has been made in the talks between the White House and the House over the last two weeks,’ House Speaker John Boehner (R., Ohio) said after meeting with … Geithner … and speaking to Mr. Obama by phone Wednesday night.” http://on.wsj.com/UvnlHK

BUILD NEW ROADS AND BRIDGES! – Reuters BreakingViews’ Agnes T. Crane: “It won’t be long before Democrats will want to throw some form of economic stimulus into the discussions over righting America’s finances … Trouble is, most [Republicans] equate stimulus with waste. But there’s a way for the White House to square the circle by capitalizing on bipartisan disgust over the nation’s crumbling roads, collapsing bridges and insufficient sea walls …

“Building a 21st-century sea wall, for example, to protect lower Manhattan from rising waters, could cost $10 billion, but over time would more than pay for itself in avoiding future storm damages. Bringing stimulus to the table may also be tactically shrewd. After all, it’s always easier to horse-trade when there is more rather than less up for grabs.” http://bit.ly/QtVE1y

SATISFYING DEM DEMANDS – WP’s Lori Montgomery and Paul Kane: “The proposal … mirrors previous White House deficit-reduction plans and satisfies Democrats’ demands that negotiations begin on terms dictated by the newly-reelected president. The offer lacks any concessions to Republicans, most notably on the core issue of where to set tax rates for the wealthiest Americans. … [I]t seemed to take Republicans by surprise …

“Democratic leaders, meanwhile, were triumphant after receiving similar briefings from Geithner and White House legislative liaison Rob Nabors. Top Democrats have for months insisted that an Obama victory would entitle them to demand far more in new taxes than Republicans have been willing to consider, to seek new measures to boost economic growth, and to avoid major cuts to entitlement programs, such as Social Security and Medicare.” http://wapo.st/QtZcRo

DID GEITHNER “NAIL IT” ON DEBT CEILING? — BusinessInsider’s Joe Weisenthal: “This [proposal] almost completely prevents a debt ceiling crisis ever again, while keeping the ceremonial aspect that people like. There would still be votes, but they'll mainly serve as a way to let politicians play politics, without putting anything at risk. For what it's worth, after the 2011 standoff, when Obama wanted to be sure that the debt ceiling hike would get the country through the 2012 election, this was the method used. The ceiling was raised in a few steps, giving the Republicans a few votes to register their displeasure. It's so reasonable, nobody could possibly disagree.” http://read.bi/UeOUmg

DEAL MAKERS HUSTLE – WSJ’s Telis Demos and David Benoit: “Deal makers and their clients are hustling to sell chunks of stock or whole companies before possible tax increases in the new year. The threat of losing gains to the tax man has some companies, private-equity shops, venture capitalists and corporate insiders looking to book profits in the waning days of the year … Even if some potential changes are dialed back, tax rates on qualified dividends and long-term capital gains are widely expected to rise for some taxpayers from their current top rates, both 15%. … When tea retailer Teavana Holdings this fall was contemplating a sale to Starbucks … its bank mentioned and the board considered the potential tax benefit to stockholders of completing a deal this year, according to a public filing and a person familiar with the deal. The Seattle-based coffee company this month announced it was acquiring the Atlanta-based tea company for $620 million and expects to close the deal this year.” http://on.wsj.com/U5G3kw

ESTATE TAX BUMP — NYT’s Jonathan Weisman: “The upfront tax increases in the proposal go beyond what Senate Democrats were able to pass earlier this year. Tax rates would go up for higher-income earners, as in the Senate bill, but Mr. Obama wants their dividends to be taxed as ordinary income, something the Senate did not approve. He also wants the estate tax to be levied at 45 percent on inheritances over $3.5 million, a step several Democratic senators balked at. The Senate bill made no changes to the estate tax, which currently taxes inheritances over $5 million at 35 percent. On Jan. 1, the estate tax is scheduled to rise to 55 percent beginning with inheritances exceeding $1 million.” http://nyti.ms/WxWfxl

ALSO FOR YOUR RADAR –

PCI ON BASEL III AND INSURANCE — From Nat Wienecke, former JPMorgan VP of global government relations, now SVP of Federal Government Relations at Property Casualty Insurers Association of America (PCI): “The bottom line is the insurance industry is very different than banking. Among the distinctions: the property casualty insurance sector is highly regulated at the state level, is not systemically risky, not interconnected, has low leverage ratios and has an effective resolution authority. The current 'one-size-fits-all' standard in Basel III would considerably complicate this framework for insurers … I am cautiously optimistic that policymakers will consider the impact of Basel III and will work to minimize the unnecessary and unintended consequences it would impose on the industry.”

COHEN TESTIFIED ON TRADES — FT’s Kara Scannell and Dan McCrum: “Steven Cohen, the founder of SAC Capital, said his hedge fund sold $700m of stocks at the centre of an insider trading investigation because one of his managers said he was ‘no longer comfortable’ with the position, according to people familiar with testimony Mr Cohen gave to investigators. The [SEC] took Mr Cohen’s testimony earlier this year, thought to be his first explanation for SAC’s trading of shares of Elan and Wyeth that were made days before the companies announced negative clinical drug trial results that sent their stocks tumbling. People familiar with the interview say Mr Cohen’s memory was otherwise vague and that he could recall few details of the content of a 20-minute phone conversation, held in 2008, with Mathew Martoma, the portfolio manager who allegedly told Mr Cohen he was not comfortable with the position.” http://on.ft.com/TuGm9t

CITIGROUP TO SLICE MORE JOBS — Bloomberg’s Donal Griffin: “Citigroup Inc’s trading and investment-banking division plans to eliminate 150 more jobs while shrinking bonuses by as much as 10 percent, extending the toll of Wall Street’s revenue slump … The dismissals, which will occur this quarter at the New York-based firm, will affect businesses including equities trading and underwriting, said one of the people, who requested anonymity because the plans haven’t been announced. While bonuses for this year will shrink across the securities and banking division, which employs about 17,000 people, top performers are likely to be spared reductions, the people said. Chief Executive Officer Michael Corbat, 52, who took charge of Citigroup last month, joins Wall Street leaders in facing an industrywide slump in trading and investment-banking revenue, stiffer capital requirements and Europe’s debt crisis. Goldman Sachs Group Inc., Morgan Stanley, and UBS AG (UBSN) are among rivals focused on reducing costs.” http://bloom.bg/U5HXBR

** A message from Public Notice: Public Notice is an independent non-profit dedicated to providing facts and insight on the economy and how government policy affects Americans’ financial well-being. Through education and awareness projects, Public Notice engages Americans on today’s policies, to avoid tomorrow’s problems.

We’re more than $16 trillion in debt and millions of Americans remain unemployed. Now we are staring down a tax increase if Washington can’t iron out a plan to address the debt and deficit. Americans have already tightened their belts. It’s time for Washington to do the same. Hardworking Americans shouldn’t have to bail out Washington’s waste with a tax increase. It’s unfair for taxpayers to pay more so Washington can waste more. Spending cuts are the only way to spur a sustained recovery and get the economy back on track. Learn what Congress is proposing in our Fiscal Cliff Briefing Book http://bnkrpt.am/Qo5NwL **